EIA raises oil price forecast but trims demand views

NathanBecker

SAN FRANCISCO (MarketWatch) - The U.S. government on Tuesday raised its 2008 price forecast for a barrel of crude oil by $5 even while it cut its outlook for U.S. and global demand, in part due to reduced gasoline use by American drivers.

Global supply concerns will likely help vault spot prices for crude oil to an average of $127 a barrel in 2008 - up from last month's estimate of $122 a barrel and $72 in 2007, according to the latest Short-Term Energy Outlook report from the Energy Information Administration, the statistical arm of the U.S. Energy Department.

World demand for oil will expand by almost 900,000 barrels a day this year, according to the monthly forecast. That's down from the 1 million barrels a day forecast in last month's report.

In the U.S., meanwhile, the Energy Department projected a steeper decrease in oil demand as Americans continue to cut back on driving and turn away from gas-hogging SUVs and trucks in favor of more fuel-efficient vehicles.

Oil demand in the U.S. is expected to fall by about 400,000 barrels a day this year, more than the 290,000 barrels a day the EIA forecast last month.

The group said it sees regular-grade gasoline averaging $3.84 a gallon in the U.S. in 2008, more than $1 a gallon above its 2007 average price. The average price in the U.S. for a gallon of regular unleaded currently is $4.11, according to AAA's daily fuel gauge report.

The EIA cited weak gasoline margins because of less U.S. consumption and growth in ethanol supply as factors that won't allow for relief at the pump anytime soon.

"For the remainder of 2008, pump prices are projected to remain well above $4.00 per gallon," the EIA said in the report.

Concerns that supply can't keep up with ballooning demand growth in China, the Middle East and Latin America are expected to continue to pressure oil prices, the report said.

Saudi Arabia's move in June to increase its oil production by 300,000 barrels a day has "not resulted in an easing of prices," the report noted.

The Organization of the Petroleum Exporting Countries is expected to produce about 32.7 million barrels a day in the third quarter, up from 32.3 million barrels a day produced in the second quarter. In last month's report, the EIA had forecast that second-quarter OPEC production would be 36.9 million barrels a day.

Non-OPEC production has been hampered by faster declines in older fields and delays in expansion projects, the Energy Department said. Those factors caused the department to adjust its projected non-OPEC production gain from 860,000 barrels a day to 230,000 barrels a day.

Crude oil futures rose 38% in the second quarter, though they've given up some ground recently. On Tuesday, near-term futures lost $4.67 to close at $136.70 a barrel as a rising U.S. dollar and economic concerns sparked a broad commodities sell-off. See Futures Movers.

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